FBR begins probe into export losses from mispricing

KARACHI: The Federal Board of Revenue (FBR) Chairman Shabbar Zaidi on Thursday asked tax officials to identify the export losses caused by mispricing or under-invoicing and to categorise exporters on the basis of their risk profiling.

Zaidi directed the officials to identify the extent of mis-invoicing in export declarations in order to ascertain the suspected items or sectors and destinations for such mis-declaration. He also asked the officials to categorise exporters on the basis of risk profiling by segregating compliant exporters from those engaged in mis-invoicing, an official statement said.

The Customs Operations wing has tasked the Directorate General Customs Valuation to submit a report on the extent of mispricing in foreign trade and the list of exporters. An estimate said the country incurs more than five billion dollars in losses a year due to under-invoicing or mispricing in foreign trade.

Exports inched down one percent to $22.9 billion in the last fiscal year of 2018/19. The figure was $23.2 billion a year earlier. In July-June FY2019, imports stood at $54.7 billion, down 9.8 percent year-over-year. The import bills of FY2018 were recorded at $60.7 billion.

Exports continued to show downward trend despite rupee depreciation and incentives offered to exporters to improve trade balance. Rupee has lost one-fourth of its value last year. The currency depreciation was seen as a driver to increase competitiveness of local products in the international market.

The FBR said the probe was launched in the backdrop of reports indicating mis-invoicing in exports, which include under-invoicing, resulting in loss of remittance of foreign exchange reserves and over-invoicing used to transfer excessive funds abroad. “Mis-invoicing could be used also possibly as a mechanism for trade-based money laundering,” it added.

The FBR said one of the suspected methods used in under-invoicing in exports is through the medium of via port cargo. Export cargoes are mis-declared by under-invoicing the values of export commodities, and shipped to a via port wherein new declaration with actual values are re-shipped for a final destination. “As a consequence, lesser amount of foreign exchange is remitted to Pakistan and major portion of export proceeds is retained in other country.”

Analysts called for a comprehensive review of valuations of foreign trade to curb under- or mis-declaration. The government is urged to apply duty at the higher value, weight, volume or quantity.

They said protocols for electronic data interchange should be agreed with all the main trading partners to stop under-invoicing. Directorate General of Reforms and Automation – Customs has already developed software for exchange of trade data on real-time basis. The country planned to initially deploy the system for its neighbouring China with which trade deficit ballooned to nearly $10 billion in the last fiscal year of 2017/18.